Should you sell REITs now and buy back later? How long can REITs keep going up? [FH Premium Post]

I recently received this great question from a reader:

“Hi FH, Can you give me your opinion? 

While expecting some interest rates cut, the likelihood of US slipping into recession has become bigger. 

I have some REITs counters like CICT, Keppel DC Reits and MIT which are making profit of about 20% and CDL losing about 15%. 

I understand interest rate cuts will benefit the REIT but at the same time, I am worried about the recession. 

Do you think it is good idea to sell the REITs now and buy back later? 

I intend to hold on to CDL and to buy more if it drops further.”

My response?

For the record, this was my answer:

“If you don’t mind I may write further on this to expand on the answer. 

But the short answer is that it depends on how much of your portfolio is invested, and the counter in question. 

If you have a lot of your portfolio invested, and if the charts for the counter looks like its topping out, then it may make sense to take profit on a certain percentage of the REITs (eg. 1/3, or possibly more). 

For me at least, REITs are about 30% of my portfolio. But charts wise the REITs look bullish so I am continuing to let them run for now. 

But this question needs to be answered unique to each investor. If you have very heavy REIT exposure, and a big drawdown from here would make you uncomfortable – doesn’t hurt to lock in the profits for a certain % of your REITs.”

But as you can imagine, the answer to this question is a nuanced one, and the more I thought about it, the more I thought my answer didn’t really do justice to the question.

Like many of you, I have decent exposure to REITs (30% of my portfolio), so this question is pretty closer to my heart, and I wanted to spend some time properly discussing this.

Why does this question matter? Some background

Here’s the Nikko AM REIT ETF.

Since the lows in early July, the index has rallied almost 15%, and that’s before including dividends.

The last time the index was this high was in Jan 2024, and over the next 6 months the index gave back most of its gains.

The question of course is whether that is going to repeat, or if REITs are going even higher.

Investors today have a decision to make:

1. Lock in the profits
2. Keep holding on in the hopes that REIT prices go even higher

How to approach this decision? 

Now and I cannot stress this enough.

Investing is not a binary yes-no decision.

Decisions like this by its very nature involves predicting the future, and the future is inherently uncertain. 

So when you approach a question like that, imagine it as you playing a poker game (and not a chess game).

There are no certainties here, its all about playing the probabilities, and how much you make when you win vs how much you lose when you’re wrong (risk-reward).

What is the decision making process?

At a high level, there are 3 questions you need to think about:

1. Will REIT prices continue to go up?
2. What is the risk-reward for holding onto REITs?
3. What is the investor’s risk appetite?

While (1) and (2) depend on external factors, (3) will vary for each investor.

Let’s walk though each of the 3 questions.

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